| Delaware(State                      or other jurisdiction ofincorporation                      or organization) | 94-2790442(I.R.S.                      EmployerIdentification                      No.) |
|-----------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------|

| 275                      Shoreline Drive, Suite 500Redwood                      Shores, California(Address                      of principal executive offices) |   |  94065(Zip                      Code) |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|

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**TABLE        OF CONTENTS**

|                                                                                                                                                                       | **Page** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
|                                                                                                                                                                       |     |
| PART                  I                                                                                                                                                    | 3        |
| Item                  1. Business                                                                                                                                          | 11       |
| Item                  1A. Risk Factors                                                                                                                                     | 13       |
| Item                  1B. Unresolved Staff Comments                                                                                                                        | 13       |
| Item                  2. Properties                                                                                                                                        | 13       |
| Item                  3. Legal Proceedings                                                                                                                                 | 13       |
| Item                  4. Submission of Matters to a Vote of Security Holders                                                                                               | 14       |
| PART                  II                                                                                                                                                   | 14       |
| Item                  5. Market For Registrant's Common Equity and Related Stockholder                  Matters                  and Issuer Purchases of Equity Securities | 14       |
| Item                  6. Selected Financial Data                                                                                                                           | 15       |
| Item                  7. Management's Discussion and Analysis of Financial                  Conditionand                  Results of Operations                            |  16 |
| Item                  7A. Quantitative and Qualitative Disclosures About Market                  Risk                                                                      | 28       |
| Item                  8. Consolidated Financial Statements and Supplementary                  Data                                                                         | 29       |
| Item                  9. Changes in and Disagreements with Accountants on                  Accountingand                  Financial Disclosures                            |  29 |
| Item                  9A. Controls and Procedures                                                                                                                          | 30       |
| Item                  9B. Other Information                                                                                                                                |     |
| PART                  III                                                                                                                                                  | 30       |
| Item                  10. Directors and Executive Officers of the Registrant                                                                                               | 30       |
| Item                  11. Executive Compensation                                                                                                                           | 32       |
| Item                  12. Security Ownership of Certain Beneficial Owners and                  Management                                                                  | 33       |
| Item                  13. Certain Relationships and Related Transactions                                                                                                   | 35       |
| Item                  14. Principal                  Accounting Fees and Services                                                                                          | 35       |
| PART                  IV                                                                                                                                                   | 37       |
| Item                  15. Exhibits, Financial Statement Schedules, and Reports on Form                  8-K                                                           | 37       |

----

**PART        I**

**Item        1.**
***Business***

*General*

** **

*Segments*

----

*Core        Technologies*

*Handwriting        recognition segment products*

|   | Jot      | Multi-lingual                  handwriting recognition software                                                                                                                                                                                                                                                                                                                                                                                                                   |   |
|--------|---------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   | SignatureOne  | SignatureOne                  Profile Server is the server compliment to CIC's Sign-it software,                  which                  enables the real-time capture of electronic and digital signatures                  in                  various application environments. All user enrollment, authentication                  and                  transaction tracking in SignatureOne is based on data from the                  Sign-it                  client software. |   |
|   | iSign         | A                  suite of application development tools for electronic signatures,                  biometric signature verification and cryptography for custom developed                  applications and web based development. Includes the Company’s traditional                  Inktools software development tools.                                                                                                                                                   |   |
|   | Sign-it  | Multi-modal                  electronic signature software for common applications including;                  Microsoft                  Word, Adobe Acrobat, AutoDesk AutoCAD, and web based applications                  using                  HTML, XML, & XHTML for the enterprise market                                                                                                                                                                                   |   |

----

*eSignature        Revenues*

----

*China        eSignature Revenue*

*™        *

|   | Licensee                                                            | Product(s)                  licensed | Application                  of Products                                                  |
|--------|---------------------------------------------------------------------|--------------------------------------|-------------------------------------------------------------------------------------------|
|   |                                                                |                                 |                                                                                      |
|   | Accelio                                                        | Inktools                        | Mobile                  forms                                                        |
|   | Agricultural                  Bank of China                    | InkTools                        | Document                  automation                                                 |
|   | Al-Faris                                                       | Multiple                        | Reseller                  and integrator in the Middle East focused on e-Signatures  |
|   | American                  General Life & Assurance (AGLA)  | Sign-it                         | Mobile                  forms                                                        |
|   | Assurant                  Group                                | Sign-It                         | Sales                  force automation, new account openings                        |
|   | Baptist                  Health                                | Inktools                        | Patient                  records                                                     |
|   | Boston                  Medical Center                         | iSign                           | Patient                  records                                                     |
|   | Cablevision                                                    | Ink                  Tools      | Document                  automation                                                 |
|   | Cellular                  One                                  | iSign                           | Document                  automation                                                 |
|   | Charles                  Schwab                                | Sign-It                         | New                  account openings                                                |
|   | China                  Ministry of Railways                    | InkTools                        | Document                  automation                                                 |
|   | County                  of Marin                               | Sign-It                         | Document                  automation                                                 |
|   | County                  of Dade                                | Sign-It                         | Document                  automation                                                 |
|   | Duncan                  Management                             | Ink                  Tools      | Document                  automation                                                 |
|   | E-Com                  Asia Pacific Pty Ltd.                   | Multiple                        | Regional                  reseller, multiple applications                            |

----

|   | Licensee                                                         | Product(s)                  licensed   | Application                  of Products                                                   |
|--------|------------------------------------------------------------------|---------------------------------------------|--------------------------------------------------------------------------------------------|
|   | EDS                                                         | InkTools                               | Information                  assurance for network and application security           |
|   | First                  American Bank                        | Sign-It                                | Various                  financial and internal documents                             |
|   | First                  Command Financial                    | Sign-It                                | Document                  automation                                                  |
|   | Franklin                  Mint                              | Sign-It                                | Document                  automation                                                  |
|   | GE                  Power Systems                           | Sign-It                                | Document                  automation                                                  |
|   | IA                  Systems                                 | InkTools                               | Loan                  organization                                                    |
|   | ILI                  Technologies, Ltd.                     | InkTools                  & iSign  | Various                  e-Signature applications for the vertical markets in Israel  |
|   | Industrial                  & Commercial Bank of China  | InkTools                               | Document                  automation                                                  |
|   | Integrate                  Online                           | InkTools                               | Mortgage                  closing                                                     |
|   | Interlink                  Electronics                      | Sign-It                                | OEM                  for multiple products                                            |
|   | Missouri                  State Lottery                     | Sign-It                                | Document                  automation                                                  |
|   | Motion                  Computing                           | Sign-On                                | Tablet                  PC logon                                                      |
|   | Nanjing                  Agricultural Bureau                | InkTools                               | Document                  automation                                                  |
|   | National                  Healthcare                        | Sign-It                                | Document                  automation                                                  |
|   | Nationwide                  Building Society                | InkTools                               | Document                  automation                                                  |
|   | Naval                  Surface Warfare                      | InkTools                               | Material                  center receipts                                             |
|   | Old                  Republic National                      | Sign-It                                | Title                  processing applications                                        |
|   | Orange                  County, CA                          | Sign-It                                | Automate                  building permit process                                     |
|   | Prudential                  Insurance Co.                   | Sign-It                  EX            | Mobile                  forms                                                         |
|   | RecordsCenter.com                                           | InkTools                               | Legal                  contracts and other significant documents                      |
|   | Saytek                                                      | Sign-It                                | Document                  automation                                                  |
|   | State                  Farm Insurance Company               | Sign-It                                | Mobile                  forms                                                         |
|   | St.                  Vincent’s Hospital               | Multiple                               | Document                  automation                                                  |
|   | Siebel                  Systems                             | Multiple                               | Sample                  delivery of regulated drugs                                   |
|   | Siemens                  Medical Solutions                  | Multiple                               | Healthcare                                                                            |
|   | Symbol                  Technologies                        | Multiple                               | Reseller                  for multiple products                                       |
|   | Tennessee                  Valley Authority                 | Multiple                               | Approval                  of internal documents                                       |
|   | Topaz                  Systems, Inc.                        | Multiple                               | OEM                  for multiple products                                            |
|   | Turner                  Construction/Oracle                 | iSign                                  | Document                  automation                                                  |
|   | University                  of Virginia                     | iSign                                  | Document                  automation                                                  |
|   | Varity                                                      | InkTools                               | Reseller                  of application software                                     |

----

|   | Licensee                                          | Product(s)                  licensed  | Application                  of Products   |
|--------|---------------------------------------------------|--------------------------------------------|--------------------------------------------|
|   | Washington                  County Hospital  | Sign-It                               | Patient                  records      |
|   | Wells                  Fargo Bank            | Sign-It                               | Document                  automation  |

*Natural        Input Revenue*

*Online/Retail        Revenues*

*China        System Integration Revenue*

***Copyrights,        Patents and Trademarks***

*Handwriting        Recognition Segment - eSignature*

|   | **Patent                  No.** | **Expiration** |   |
|--------|---------------------------------|----------------|--------|
|   | 4718102                         | 2005           |   |
|   | 5049862                         | 2008           |   |
|   | 5544255                         | 2013           |   |
|   | 5647017                         | 2014           |   |

----

|   | **Patent                  No.** | **Expiration** |   |
|--------|---------------------------------|----------------|--------|
|   | 5818955                         | 2015           |   |
|   | 5933514                         | 2016           |   |
|   | 6064751                         | 2017           |   |
|   | 6091835                         | 2017           |   |
|   | 6212295                         | 2018           |   |
|   | 6381344                         | 2019           |   |
|   | 6487310                         | 2019           |   |

*Systems        Integration Segment*

***Material        Customers***

*Handwriting        Recognition Segment*

*Systems        Integration Segment*

***Seasonality        of Business***

----

***Backlog***

*Handwriting        Recognition Segment*

*Systems        Integration Segment*

***Competition***

*Handwriting        Recognition Segment*

*Systems        Integration Segment*

***Employees***

***Geographic        Areas***

----

***Forward        Looking Statements***

**Item        1A.**
***Risk        Factors***

**Operating        losses may continue, which could adversely affect financial results from        operations and stockholder value. **

**We        have experienced significant declines in revenues in recent periods which,        if        continued, could adversely affect stockholder value. **

----

**Our        competitors could develop products or technologies that could make our products        or technologies non-competitive, which would adversely affect sales, financial        results from operations and stockholder value. **

**If        we are unable to adequately protect our intellectual property, third parties        may        be able to use our technology, which could adversely affect our ability to        compete in the market, our financial results from operations and stockholder        value. **

**A        significant portion of our sales are derived from a limited number of customers,        and results from operations could be adversely affected and shareholder value        harmed if we lost any of these customers. **

----

*Risks        Related to our Capital Structure *

**The        market price of our stock can be volatile, which could result in losses for        investors. **

**Statutory        provisions and provisions in our charter may delay or frustrate transactions        that may be beneficial to our stockholders. **

**Resale        by the holder of the Notes and Warrants could adversely affect the market        price        of our stock. **

**Item        1B.**
***Unresolved        Staff Comments***

**Item        2. **
***Properties***

**Item        3. **
***Legal        Proceedings***

----

**Item        4. **
***Submission        of Matters to a Vote of Security Holders***

**PART        II**

**Item        5. **
***Market        For Registrant's Common Equity and Related Stockholder Matters and issuer        Purchases of Equity Securities***

|     |                                                          | **Sale                  Price****Per                  Share** |
|----------|---------------------------------------------------------------|---------------------------------------------------------------|
| **Year** | **Period**                                                    | **High**                                                      | **Low** |
|     |                                                          |                                                          |   |
| 2004     | First                  Quarter                                | $                  1.10                                       | $ 0.35 |
|     | Second                  Quarter                               | $                  0.90                                       | $                  0.42 |
|     | Third                  Quarter                                | $                  0.80                                       | $ 0.31 |
|     | Fourth                  Quarter                               | $                  0.71                                       | $ 0.35 |
| 2005     | First                  Quarter                                | $                  0.63                                       | $ 0.38 |
|     | Second                  Quarter                               | $                  0.59                                       | $                  0.23 |
|     | Third                  Quarter                                | $                  0.61                                       | $ 0.39 |
|     | Fourth                  Quarter                               | $                  0.55                                       | $ 0.37 |
| 2006     | First                  Quarter (through March 15, 2006)  | $                  0.53                                       | $ 0.40 |

|   |  Year |  Number                  of Shares | Approximate                  Exercise Price Per Share |   |
|--------|------------|-----------------------------------------|-------------------------------------------------------|--------|
|   | 2005       | 4,142                                   | $0.79                                                 |   |
|   | 2004       | 1,334                                   | $0.53                                                 |   |
|   | 2003       | 858                                     | $0.32                                                 |   |

----

**Item        6. **
***Selected        Financial Data***

|                                                                |   | **Years                  Ended December 31,**                 |   |
|---------------------------------------------------------------------|--------|---------------------------------------------------------------|--------|
|                                                                |   | **2005**                                                      |   | **2004** |   | **2003** |   | **2002** |   | **2001** |   |
|                                                                |   | **(In                  thousands, except per share amounts)** |   |
| **Statement                  of Operations Data:**                  |   |                                                          |   |   |   |   |   |   |   |   |   |
| Revenues                                                            |   | $                                                             | 3,121  |   | $ | 7,284 |   | $ | 3,034 |   | $ | 3,272 |   | $ | 5,947 |   |
| Research                  and development expenses(1)               |   |                                                          | 1,144  |   |   | 1,187 |   |   | 1,302 |   |   | 1,485 |   |   | 1,808 |   |
| Sales                  and marketing expenses                       |   |                                                          | 1,240  |   |   | 1,306 |   |   | 905 |   |   | 1,543 |   |   | 2,054 |   |
| General                  and administrative expenses                |   |                                                          | 2,173  |   |   | 2,483 |   |   | 2,219 |   |   | 2,424 |   |   | 2,791 |   |
| Income                  (loss) from operations                      |   |                                                          | (1,584 | ) |   | 2,255 |   |   | (2,157 | ) |   | (3,337 | ) |   | (2,946 | ) |
| Net                  income (loss) available to common stockholders |   | $                                                             | (4,031 | ) | $ | 1,620 |   | $ | (2,345 | ) | $ | (3,561 | ) | $ | (3,215 | ) |
| Basic                  and diluted income (loss) per share          |   | $                                                             | (0.04  | ) | $ | 0.02 |   | $ | (0.02 | ) | $ | (0.04 | ) | $ | (0.04 | ) |

|                                                        |   |     |   | **As                  of December 31,** |   |     |   |
|-------------------------------------------------------------|--------|----------|--------|-----------------------------------------|--------|----------|--------|
|                                                        |   | **2005** |   | **2004**                                |   | **2003** |   | **2002** |   | **2001** |   |
|                                                        |   |     |   | **(In                  thousands)**     |   |     |   |
| **Balance                  Sheet Data:**                    |   |     |   |                                    |   |     |   |   |   |   |   |
| Cash,                  cash equivalents and restricted cash |   | $        | 2,849  |                                    | $      | 4,736    |   | $ | 1,039 |   | $ | 711 |   | $ | 2,588 |   |
| Working                  capital(2)                         |   |     | 2,258  |                                    |   | 4,068    |   |   | (2,895 | ) |   | 443 |   |   | 3,017 |   |
| Total                  assets                               |   |     | 8,466  |                                    |   | 10,819   |   |   | 7,215 |   |   | 7,168 |   |   | 10,072 |   |
| Deferred                  revenue                           |   |     | 557    |                                    |   | 458      |   |   | 165 |   |   | 165 |   |   | 88 |   |
| Long-term                  obligations                      |   |     | 1,169  |                                    |   | 1,790    |   |   | 13 |   |   | 3,000 |   |   | 3,000 |   |
| Stockholders'                  equity (3)                   |   |     | 5,856  |                                    |   | 7,531    |   |   | 2,187 |   |   | 2,934 |   |   | 6,060 |   |

| (1)   | Excludes                  software development costs capitalized in accordance with Statement                  of                  Financial Accounting Standards No. 86 of $299 at December 31, 2005,                  $32 at                  December 31, 2004 and $20 at December 31, 2001 respectively. No                  software                  development costs were capitalized in the years ended December                  31, 2003                  and 2002. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Current                  liabilities used to calculate working capital at December 31, 2005,                  2004,                  2003, 2002, and 2001 include deferred revenue of $557, $458, $165,                  $165,                  and $88, respectively. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)   | The                  Company has never paid dividends to the holders of its common stock. |
|-----------------|-------------------------------------------------------------------------------------------|

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**Item        7. **
***Management's        Discussion and Analysis of Financial Condition and Results of        Operations***

*Overview*

*New        Accounting Pronouncements*

----

*Critical        Accounting Policies*

----

| ·   | whether                  there are legal, regulatory or contractual provisions known to                  it that                  limit the useful life of each patent to less than the assigned                  useful                  life; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | whether                  the Company needs to incur material costs or make modifications                  in order                  for it to continue to be able to realize the protection afforded                  by the                  patents; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | whether                  any effects of obsolescence or significant competitive pressure                  on the                  Company’s current or future products are expected to reduce the                  anticipated cash flow from the products covered by the                  patents; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | whether                  demand for products utilizing the patented technology will diminish,                  remain stable or increase; and |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | whether                  the current markets for the products based on the patented technology                  will                  remain constant or will change over the useful lives assigned to                  the                  patents. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

*Segments*

*Results        of Operations*

|                                           |   | Years                  Ended December 31, |    |
|------------------------------------------------|--------|-------------------------------------------|---------|
|                                           |   | 2005                                      |    | 2004 |   | 2003 |   |
| Handwriting                  recognition       |   |                                      |    |   |   |   |   |
| eSignature                                     |   | $                                         | 1,837   |   | $ | 6,158 |   | $ | 1,530 |   |
| eSignature                  China              |   |                                      | 230     |   |   | 120 |   |   | 319 |   |
| Natural                  input                 |   |                                      | 1,054   |   |   | 969 |   |   | 518 |   |
| Total                  Handwriting recognition |   | $                                         | 3,121   |   | $ | 7,247 |   | $ | 2,367 |   |
| Systems                  integration China     |   |                                      | − |   |   | 37 |   |   | 667 |   |
|  Total                  revenues          |   | $                                         | 3,121   |   | $ | 7,284 |   | $ | 3,034 |   |
|  Cost                  of Sales           |   |                                      |    |   |   |   |   |   |   |   |
| Handwriting                  recognition       |   |                                      |    |   |   |   |   |   |   |   |
| eSignature                                     |   | $                                         | 105     |   | $ | 22 |   | $ | 124 |   |
| Natural                  input                 |   |                                      | 43      |   |   | − |   |   | 17 |   |
| Systems                  integration           |   |                                      | − |   |   | 31 |   |   | 624 |   |
| Total                  cost of sales           |   | $                                         | 148     |   | $ | 53 |   | $ | 765 |   |

| Operating                  cost and expenses                                    |   |   |   |   |   |    |   |   |    |   |
|---------------------------------------------------------------------------------|--------|--------|--------|--------|--------|---------|--------|--------|---------|--------|
| Research                  and development                                       |   | $      | 1,144  |   | $      | 1,187   |   | $      | 1,302   |   |
| Sales                  and Marketing                                            |   |   | 1,240  |   |   | 1,306   |   |   | 905     |   |
| General                  and administrative                                     |   |   | 2,173  |   |   | 2,483   |   |   | 2,219   |   |
| Total                  operating costs and expenses                             |   | $      | 4,557  |   | $      | 4,976   |   | $      | 4,426   |   |
|                                                                            |   |   |   |   |   |    |   |   |    |   |
| Interest                  and other income (expense) net, and Minority interest |   | $      | (172   | )      | $      | (635    | )      | $      | (188    | )      |
| Amortization                  of loan discount and deferred financing cost      |   |   | (2,275 | )      |   | − |   |   | − |   |
|                                                                            |   |   |   |   |   |    |   |   |    |   |
| Net                  income (loss)                                              |   | $      | (4,031 | )      | $      | 1,620   |   | $      | (2,345  | )      |

----

|                                                                       |   |  Years                  Ended December 31, |
|-----------------------------------------------------------------------|--------|-------------------------------------------------|
|                                                                  |   |                                            | 2005 |   |   | 2004 |   |   | 2003 |   |
| Amortization                  of intangible assets                    |   |                                            |   |   |   |   |   |   |   |   |
| Cost                  of sales                                        |   | $                                               | 49 |   | $ | 12 |   | $ | 14 |   |
| General                  and administrative                           |   |                                            | 378 |   |   | 379 |   |   | 379 |   |
| Total                  amortization of intangible assets (See note 1) |   | $                                               | 427 |   | $ | 391 |   | $ | 393 |   |
|                                                                  |   |                                            |   |   |   |   |   |   |   |   |

**Years        Ended December 31, 2005 and December 31, 2004**

***Revenues***

*Handwriting        Recognition Segment. *

***eSignature        revenue.***

*™        *

***Natural        Input revenues.***

----

***Systems        Integration revenues.***

**Cost        of Sales.**

*Handwriting        recognition.*

*eSignature.        *

*Natural        input.*

*System        integration*

----

**Operating        expenses**

*Research        and Development Expenses*

*Sales        and Marketing Expenses*

*General        and Administrative Expenses*

----

*Interest        income and other income (expense), net*

*Interest        expense*

**Years        Ended December 31, 2004 and December 31, 2003**

***Revenues***

*Handwriting        Recognition Segment. *

***eSignature        revenue.***

----

***Natural        Input revenues.***

*Systems        Integration. *

**Cost        of Sales.**

*Handwriting        recognition.*

*eSignature.        *

*Natural        input.*

----

*Systems        Integration. *

**Operating        expenses**

*Research        and Development Expenses*

*Sales        and Marketing Expenses*

*General        and Administrative Expenses*

----

*Interest        income and other income (expense), net*

*Interest        expense*

**Liquidity        and Capital Resources**

----

*Financing.*

** **
**.        **
** **

----

** **

*Contractual        Obligations.*

|                                                  |   | Payments                    due by period |
|-------------------------------------------------------|--------|-------------------------------------------|
|  Contractual                  obligations        |   | Total                                     | 2006 | 2007 | 2008 | 2009 | 2010 | Thereafter |
| Long-term                    debt (1)                 |   | $ 1,169                              | $                                 - | $ 1,169 | $     - | $                          - | $- | $ - |
| Operating                    lease commitments (2)    |   | 1,601                                     | 309 | 236 | 264 | 272 | 280 | 240 |
| Total                    contractual cash obligations |   |  $ 2,770                        |  $                                            309 |  $ 1,405 | $264 |  $ 272 |  $280 |  $240 |

| 1.   | Long-term                  debt is net of approximately $674 in discounts representing the                  fair value                  of warrants issued to the investors and the beneficial conversion                  feature                  associated with the convertible                  notes. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2.   | The                  operating lease commenced on November 1, 2002. The lease was renegotiated                  in December 2005 and extended for an additional 60 months. The                  base rent                  will increase approximately 3% per annum over the term of the lease,                  which                  expires on October 31, 2011. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Item        7A.*****Quantitative        and Qualitative Disclosures About Market Risk***

----

**Item        8. Consolidated Financial Statements and Supplementary        Data**

**Item        9. **
***Changes        in and Disagreements with Accountants on Accounting and Financial        Disclosures***

***Controls        and Procedures***

*Disclosure        Controls*

*Internal        Controls and Procedures*

----

**Item        9B. **
***Other        Information***

**Item        10. **
***Directors        and Executive Officers of the Registrant***

**Directors**

|  **Name**                                       |  **Age** | **Year                  First Elected****or                  Appointed** |
|------------------------------------------------------|---------------|--------------------------------------------------------------------------|
|                                                 |          |                                                                     |
| Guido                  D. DiGregorio                 | 67            | 1997                                                                     |
| Michael                  Farese (1), (2), (3), (4)   | 58            | 2002                                                                     |
| Louis                  P. Panetta (1), (2), (3), (4) | 56            | 2000                                                                     |
| C.                  B. Sung (1), (2), (3), (4)       | 80            | 1986                                                                     |
| David                  E. Welch (1), (4)             | 58            | 2004                                                                     |

*Guido        D. DiGregorio*

*    **Mike          Farese*

*Louis        P. Panetta *

----

*C.B.        Sung*

*David          E.          Welch*

**EXECUTIVE        OFFICERS**

|   |  **Name**                             |  **Age** |  **Positions                  Currently Held**                                            |   |
|--------|--------------------------------------------|---------------|------------------------------------------------------------------------------------------------|--------|
|   |                                       |          |                                                                                           |   |
|   | Guido                  D. DiGregorio  | 67            | Chairman                  of the Board,Chief                  Executive Officer and President, |   |
|   | Francis                  V. Dane           | 55            | Chief                  Legal Officer,Secretary                  and Chief Financial Officer    |   |
|   | Russel                  L. Davis      | 41       | Chief                  Product Officer                                                    |   |

*Guido        D. DiGregorio*

*Francis            V. Dane*

*Russell          L. Davis*

----

**CODE        OF BUSINESS CONDUCT AND ETHICS**

**Item        11. **
***Executive        Compensation***

**Summary        Compensation Table**

|                                                                                                                         |   |                 |         |  **Annual                  Compensation** |   | **Long-Term****Compensation**                           |   |
|------------------------------------------------------------------------------------------------------------------------------|--------|----------------------|--------------|------------------------------------------------|--------|---------------------------------------------------------|--------|
|   **Name                  and Principal Position**                                                                 |   |   **Year** |         |   **Salary**                         |   |  **Other                  Annual****Compensation** |   | **Securities****Underlying****Options** |   |
| Guido                  DiGregorio Chairman,                  President and Chief Executive Officer                      |   |                 | 200520042003 |                                           | $$$    | 322,875(1259,371(1206,250(1                             | )))    |   | --- |   |   | 1,700,000-- |   |
| Francis                  V. DaneChief                  Legal Officer, Secretary and Chief                  Financial Officer |   |                 | 200520042003 |                                           | $$$    | 146,643138,125128,500                                   |   |   | --- |   |   | 143,943100,000100,000 |   |
| Russel                  L. DavisChief                  Product Officer                                                       |   |                 | 2005         |                                           | $      | 48,303(2                                                | )      |   | - |   |   | 500,000 |   |

**Option        Grants in 2005**

----

**Aggregate        Option Exercises in 2003 and Year-End Option Values**

|       **Name** |    **Shares****Acquired****On****Exercise** |      **Value****Realized** | **Number                    of Securities****Underlying                    Unexercised****Options                    at Fiscal****Year-End****Exercisable(E)/****Unexercisable(U)** |   **Value                    of Unexercised****In-The-Money                    Options****at                    Fiscal Year-End(1)****Exercisable(E)/****Unexercisable(U)** |
|----------------------------------------------|------------------------------------------------------------|-----------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                         |                                                       |                                                |                                                                                                                                                                                |                                                                                                                                                                                  |
| Guido                    DiGregorio          | -                                                          | $ -                                            | 3,650,000                    (E)                                                                                                                                                    | $                      42,500                    (E)(1)                                                                                                                     |
| Francis                    V. Dane           | -                                                          | $ -                                            | 309,852                    (E)                                                                                                                                                      | $                      12,916                    (E)(1)                                                                                                                     |
|                                         |                                                       |                                                | 134,091                    (U)                                                                                                                                                      |                              682 (U)(1)                                                                                                  |
| Russel                    L. Davis           | -                                                          | $ -                                            | 500,000                    (E)                                                                                                                                                      |  $                               -                    (E)(1)                                                              |

| (1)   | The                  value of unexercised in-the-money options was determined by using                  the                  difference between the closing sale price of the common stock on                  the                  Nasdaq Over the Counter Market as of December 31, 2005 ($0.43) and                  the exercise price of such options. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Item        12. **
***Security        Ownership of Certain Beneficial Owners and Management***

|   |                                          | **Common                  Stock**        |
|--------|-----------------------------------------------|------------------------------------------|
|   | **Name                  of Beneficial Owner** | **Number****of                  Shares** | **Percent****of                  Class** |
|   |                                          |                                     |   |
|   | Guido                  DiGregorio (1)         | 3,650,000                                | 3.43% |
|   | C.                  B. Sung (2)               | 1,807,610                                | 1.70% |
|   | Louis                  P. Panetta (3)         | 203,125                                  | * |
|   | Michael                  Farese (4)           | 150,000                                  | * |

----

|   |                                                                         | **Common                  Stock**        |
|--------|------------------------------------------------------------------------------|------------------------------------------|
|   | **Name                  of Beneficial Owner**                                | **Number****of                  Shares** | **Percent****of                  Class** |
|   | David                  E. Welch(5)                                           | 100,000                                  | * |
|   | Francis                  V. Dane (6)                                         | 529,788                                  | * |
|   | Russel                  L. Davis (7)                                         | 500,000                                  | * |
|   | All                  directors and executive officers as a group (6 persons) | 6,940,523                                | 6.51% |
|   | Michael                  W. Engmann (8)                                      | 7,947,714                                | 7.46% |

| * | Less                  than 1%. |
|---|--------------------------------|

| (1)   | Represents                  3,650,000 shares, issuable upon the exercise of stock options exercisable                  within 60 days here of. The business address of Mr. DiGregorio is 275                  Shoreline Drive, Suite 500, Redwood Shores, California 94065. See                  “Executive Compensation; Option Grants in                  2005.” |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Includes                  (a) 1,568,051 shares held by the Sung Family Trust, of which Mr. Sung                  is a trustee, (b) 3,369 shares held by the Sung-Kwok Foundation,                  of which                  Mr. Sung is the Chairman, and (c) 236,190 shares of common stock                  issuable                  upon the exercise of stock options , exercisable within 60 days                  here of.                  Mr. Sung may be deemed to beneficially own the shares held by the                  Sung Family Trust and the Sung-Kwok Foundation. The business address                  of                  Mr. Sung is, UNISON Group, 1001 Bayhill Dr., 2nd                  Floor, San Bruno, California 94066. See                  “Certain Relationships and Related                  Transactions.” |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)   | Represents                  203,125 shares issuable upon the exercise of options exercisable                  within 60                  days here of. Mr. Panetta’s business address is 827 Via Mirada,                  Monterey, California 93940. See                  “Certain Relationships and Related                  Transactions.” |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4)   | Represents                  150,000 shares issuable upon the exercise of stock options exercisable                  within 60 days hereof. The business address of Mr. Farese                  is 275                  Shoreline Drive, suite 500, Redwood City, CA94065.  See                  “Certain Relationships and Related                  Transactions.” |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5)   | Represents                  100,000 shares issuable upon the exercise of stock options exercisable                  with in 60 days here of. The business address of Mr. Welch is 1729                  East                  Otero Avenue, Littleton, CO 80122. See “Certain Relationships and Related                  Transactions.” |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6)   | Represents                  (a) 212 shares held by Mr. Dane and (b) 529,576 shares issuable                  upon the                  exercise of stock options exercisable within 60 days here of. The                  business                  address of Mr. Dane is 275 Shoreline Drive, Suite 500, Redwood                  Shores, California 94065. See “Executive Compensation; Option Grants in                  2005.” |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (7)   | Represents                  500,000 shares issuable upon the exercise of stock options within                  60 days                  here of. The business address of Mr. Davis is 275 Shoreline Drive,                  Suite 500, Redwood Shores, California 94065. See “Executive                  Compensation; Option Grants in                  2005.” |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (8)   | Represents                  (a) 2,622,907 shares held by MDNH                  Partners, L.P. of which Mr. Engmann is a partner and (b) 5,324,807held                  by Mr. Engmann. Such shares were reported on Schedule 13G dated                  December                  28, 2005. Mr. Engmann may                  be deemed to beneficially own the 2,622,907 shares held by MDNH                  Partners,                  L.P. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**SECTION        16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE**

**Item        13. **
***Certain        Relationships and Related Transactions***

**Director        Compensation**

**Item        14. **
***Principal        Accounting Fees and Services***

----

* *

----

**PART        IV**

**Item        15. Exhibits, Financial Statement Schedules, and Reports on Form        8-K**

**Index        to Financial Statements**

|   |                                                                                                                                                   | **Page**  |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|-----------|
| (a)(1) | Financial                  Statements                                                                                                                  |      |
|   | Report                  of Stonefield Josephson, Inc., Independent Registered Public Accounting                  Firm                                  | F-1       |
|   | Consolidated                  Balance Sheets at December 31, 2005 and 2004                                                                        | F-2       |
|   | Consolidated                  Statements of Operations for the years ended December 31, 2005, 2004,                  and 2003                     | F-3       |
|   | Consolidated                  Statements of Changes in Stockholders' Equity for the years ended                  December 31, 2005, 2004 and 2003 |  F-4 |
|   | Consolidated                  Statements of Cash Flows for the years ended December 31, 2005, 2004                  and 2003                      | F-5       |
|   | Notes                  to Consolidated Financial Statements                                                                                            | F-7       |
| (a)(2) | Financial                  Statement Schedule                                                                                                          |      |
|   | Schedule                  II Valuation and Qualifying Accounts and Reserves                                                                            | S-1       |

| 1.   | Current                  Report on Form 8-K, Item 1.01 dated September 21,2005, with respect                  to the                  increases in officers salaries. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2.   | Current                  Report on Form 8-K, Item 1.01 dated December 19, 2005, with respect                  to                  stock option grants to officers and                  directors. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **Exhibit****Number** | **Document**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|-----------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 2.0                   | Second                  Amended Plan of Reorganization of the Company, incorporated herein                  by                  reference to the Company's Form 8-K filed October 24,                  1994.                                                                                                                                                                                                                                                                                                                                        |
| 2.1                   | Orderly                  Liquidation Valuation, Exhibit F to the Second Amended Plan of                  Reorganization, incorporated herein by reference to the Company's                  Form 8-K filed October 19, 1994.                                                                                                                                                                                                                                                                                                                        |
| 2.2                   | Order                  Confirming Plan of Reorganization, incorporated herein by reference                  to the                  Company's Form 8-K filed November 14, 1994.                                                                                                                                                                                                                                                                                                                                                                     |
| 3.1                   | Certificate                  of Incorporation of the Company, as amended, incorporated herein                  by                  reference to Exhibits 3.1, 3.2, 3.3 and 3.4 to the Company's Registration                  Statement on Form 10 (File No. 0-19301).                                                                                                                                                                                                                                                                         |
| 3.2                   | Certificate                  of Amendment to the Company's Certificate of Incorporation (authorizing                  the reclassification of the Class A Common Stock and Class B                  Common Stock into one class of Common Stock) as filed with the                  Delaware                  Secretary of State's office on November 1, 1991, incorporated herein                  by reference to Exhibit 3 to Amendment 1 on Form 8 to the                  Company's Form 8-A (File No. 0-19301). |
| 3.3                   | By-laws                  of the Company adopted on October 6, 1986, incorporated herein by                  reference to Exhibit 3.5 to the Company's Registration Statement on                  Form 10 (File No. 0-19301).                                                                                                                                                                                                                                                                                                              |
| 4.1                   | 1984                  Stock Option Plan of the Company, as amended and restated as of                  October 15, 1987 and as amended by resolutions of the stockholders of                  the Company passed on August 15, 1989 and October 8, 1990 to                  increase the aggregate shares covered thereby to 1,000,000, incorporated                  herein by reference to Exhibit 4.4 to the Company's Registration                  Statement on Form 10 (File No. 0-19301).                                |
| 4.2                   | Form                  of Stock Option Grant under 1984 Stock Option Plan, incorporated                  herein by                  reference to Exhibit 4.5 to the Company's Registration Statement on                  Form 10                  (File No. 0-19301).                                                                                                                                                                                                                                                                      |

----

| 4.3         | 1991                  Stock Option Plan of the Company, incorporated herein by reference                  to                  Exhibit 4.5 of the Company's Form S-1 dated December 23,                  1991 (Registration No. 33-43879).                                                                                                                                                    |
|-------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.4         | 1991                  Non-Discretionary Stock Option Plan, incorporated herein by reference                  to                  Exhibit 4.6 of the Company's Form S-1 dated December 23,                  1991 (Registration No. 33-43879).                                                                                                                                                 |
| 4.5         | Form                  of Incentive Stock Option Grant under 1991 Stock Option Plan, incorporated                  herein by reference to Exhibit 4.7 of the Company's Form S-1                  dated December 23, 1991 (Registration                  No. 33-43879).                                                                                                                        |
| 4.6         | Form                  of Non-Qualified Stock Option Grant under 1991 Stock Option Plan,                  incorporated herein by reference to Exhibit 4.8 of the Company's                  Form S-1 dated December 23, 1991 (Registration                  No. 33-43879).                                                                                                                    |
| 4.7         | Form                  of Stock Option Grant under 1991 Non-Discretionary Stock Option                  Plan,                  incorporated herein by reference to Exhibit 4.9 of the Company's                  Form S-1 dated December 23, 1991 (Registration                  No. 33-43879).                                                                                               |
| 4.8         | 1994                  Stock Option Plan, incorporated herein by reference to Exhibit                  G of the                  Company's Second Amended Disclosure Statement filed on Form 8-K dated                  October 19, 1994 and approved by shareholders on November 14,                  1994.                                                                                       |
| 4.9         | Form                  of Warrant of the Company dated March 28, 1997 issued in connection                  with the Waiver by and among the Company and the signatories thereto,                  incorporated herein by reference to Exhibit 4.9 of the Company's 1996                  Form 10-K (File No. 0-19301).                                                                       |
| 4.10        | 1999                  Stock Option Plan, incorporated herein by reference to Exhibit                  A of the                  Company's Definitive Proxy Statement filed on May 4, 1999 and approved                  by                  shareholders on June 7, 1999. .                                                                                                                                      |
| 4.11        | Form                  of Convertible Promissory Note issued by Communication Intelligence                  Corporation, incorporated herein by reference to Exhibit 10.3 to                  the                  Company's Form 8-K dated November 3, 2004.                                                                                                                                                |
| 4.12        | Form                  of Warrant issued by Communication intelligence Corporation, incorporated                  herein by reference to Exhibit 10.4 to the Company's Form 8-K dated                  November 3, 2004.                                                                                                                                                                                     |
| 4.13        | Form                    of Stock Option Grant under Non-Plan Stock Options, incorporated                  herein by                  reference to the Company's Form S-8 dated March 30, 2006                  (Registration No. 33- ).                                                                                                                                                                |
| †10.1 | Licensing                  and Development Agreement for Use and Marketing of Program Materials                  dated                  September 25, 1992 between the Company and International Business                  Machines Corporation, incorporated herein by reference to                  Exhibit 10.13 of the Company's 1992 Form 10-K                  (File No. 0-19301) |
| 10.2        | Standby                  Stock Purchase Agreement between the Company and Philip Sassower                  dated                  October 3, 1994, incorporated herein by reference to                  Exhibit 10.13 of the Company's 1994 Form 10-K (File                  No. 0-19301)                                                                                                    |
| 10.3        | Form                  of Subscription Agreement between the Company and the Purchasers,                  dated                  November 28, 1995, incorporated herein by reference to Exhibit 1                  of the Company's Form 8-K dated November 28,                  1995.                                                                                                        |
| 10.4        | Form                  of Registration Rights Agreement between the Company and the Purchasers,                  dated November 28, 1995, incorporated herein by reference to                  Exhibit 1 of the Company's Form 8-K dated November 28,                  1995.                                                                                                                  |
| 10.5        | Form                  of Warrant of the Company issued to Libra Investments, Inc. on                  November 28, 1995, incorporated herein by reference to Exhibit 1                  of the Company's Form 8-K dated November 28,                  1995.                                                                                                                                  |
| 10.6        | Form                  of Registration Rights Agreement between the Company and Libra                  Investments, Inc., dated November 28, 1995, incorporated herein by                  reference to Exhibit 1 of the Company's Form 8-K dated                  November 28, 1995.                                                                                                         |
| 10.7        | Form                  of Subscription Agreement between the Company and various investors,                  dated                  June 13, 1996, incorporated herein by reference to Exhibit 1 of                  the Company's Form 8-K dated June 27, 1996.                                                                                                                              |
| 10.8        | Form                  of Registration Rights Agreement between the Company and various                  investors, dated June 13, 1996, incorporated herein by reference to                  Exhibit 2 of the Company's Form 8-K dated June 27,                  1996.                                                                                                                       |
| 10.9        | Form                  of Preferred Stock Investment Agreement, dated as of December 31,                  1996, between the Company and the investors listed on Schedule 1                  thereto, incorporated herein by reference to Exhibit 1 of the                  Company's Form 8-K dated December 31,                  1996.                                                  |

----

| 10.10               | Form                    of Registration Rights Agreement between the Company and the                    Investors                    Listed on Schedule 1 thereto, incorporated herein by reference to                    Exhibit 2 of the Company's Form 8-K dated December 31,                    1996.                                                                                            |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.11               | Form                    of Certificate of Designation of the Company with respect to                    the 5%                    Cumulative Convertible Preferred Stock, incorporated herein by                    reference                    to Exhibit 3 of the Company's Form 8-K dated December 31,                    1996.                                                                       |
| 10.12               | Waiver,                    dated March 26, 1997, effective December 31, 1996, by and among                    the Company and the signatories thereto, incorporated herein                    by reference                    to Exhibit 10.19 of the Company's 1996 Form 10-K (File                    No. 0-19301).                                                                           |
| 10.13               | Form                    of Subscription Agreement between the Company and each subscriber,                    dated                    as of November 25, 1997, incorporated herein by reference to Exhibit                    10.1 of the Company's Form 8-K dated December 3,                    1997.                                                                                                       |
| 10.14               | Certificate                    of Designations of the Company with respect to the Series B 5%                    Cumulative                    Convertible Preferred Stock, incorporated herein by reference                    to Exhibit                    10.2 of the Company's Form 8-K dated November 13,                    1997.                                                                            |
| 10.15               | Form                    of Registration Rights Agreement, by and among the Company and                    the                    signatories thereto, dated as of November 25, 1997, incorporated                    herein by reference to Exhibit 10.3 to the Company's Form 8-K                    dated                    November 13, 1997.                                                              |
| 10.16               | Amendment                    to the Company’s Certificate of Designation with respect to the 5%                    Cumulative Convertible Preferred Stock dated June 12, 1998, incorporated                    herein by reference to Exhibit 10.23 of the Company's 1998                    Form 10-K (File No. 0-19301).                                                                          |
| 10.17               | Amendment                    to the Company’s Amended and Restated Certificate of Incorporation dated                    June 12, 1998 incorporated herein by reference to Exhibit 10.24 of                    the Company's 1998 Form 10-K (File                    No. 0-19301).                                                                                                                  |
| 10.18               | Employment                    Agreement dated August 14, 1998 between James Dao and the Company                    incorporated herein by reference to Exhibit 10.25 of the Company's                    1998 Form 10-K (File No. 0-19301).                                                                                                                                                               |
| ††10.19 | Software                    Development and License Agreement dated December 4, 1998 between                    Ericsson                    Mobile Communications AB and the Company incorporated herein                    by reference                    to Exhibit 10.26 of the Company's 1998 Form 10-K (File                    No. 0-19301).                                                       |
| 10.20               | Loan                    and Warrant Agreement dated October 20, 1999 between the Company                    and the                    Philip S. Sassower 1996 Charitable Remainder Annuity                    Trust.                                                                                                                                                                                                    |
| 10.21               | Asset                    Purchase Agreement between the Company and PenOp Ltd and PenOp                    Inc.                    incorporated herein by reference to the Company’s Form 8-K dated October                    6, 2000.                                                                                                                                                                            |
| 10.22               | Loan                    Agreement dated June 19, 2001 between the Company and the Philip                    S.                    Sassower 1996 Charitable Remainder Annuity Trust.                                                                                                                                                                                                                                      |
| 10.23               | Equity                    Line of Credit Agreement between the Company and Cornell Capital                    Partners,                    LP, incorporated by reference to the Company’s Registration Statement on                    Form S1 dated February 13, 2003 (File No. 333-103157)                                                                                                                       |
| 10.24               | Form                    of Note and Warrant Purchase Agreement dated October 28, 2004,                    among                    Communication Intelligence Corporation and the Purchasers identified                    there                    in,                    incorporated herein by reference to Exhibit 10.1 to the Company's                    Form 8-K                    dated November 3, 2004. |
| 10.25               | Form                    of Registration Rights Agreement dated October 28, 2004, among                    Communication Intelligence Corporation and the parties identified                    there                    in,                    incorporated herein by reference to Exhibit 10.2 to the Company's                    Form 8-K                    dated November 3, 2004.                        |

| *Xx                       10.26 | Amendment                      dated May 31, 2005 to the License agreement dated December                      22, 2000                      between the Company and eCom Asia Pacific, Ltd. filed as Exhibit                      10.26                      here in. |
|------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| *Xx                       10.27 | License                      agreement dated June 2, 2005 between the Company and SnapOn                      Credit L. L                      C.. filed as Exhibit 10.27 here in.                                                                                     |
| 10.28                                          | Amendment                    to employment agreement with Guido DiGregorio, incorporated herein                    by                    reference to the Company's Form 8-K dated September 21,                    2005.                                              |
| 10.29                                          | Amendment                    to employment agreement with Frank V. Dane, , incorporated herein                    by                    reference to the Company's Form 8-K dated September 21,                    2005.                                               |
| *10.30                                         | Form                    of stock option agreement dated August 31, 2005 with Russel L.                    Davis filed                    as Exhibit 10.30 here in.                                                                                                     |
| *10.31                                         | Form                    of stock option agreement dated December 19, 2005 with Guido                    DiGregorio                    filed as Exhibit 30 here in.                                                                                                     |
| *10.32                                         | Form                    of stock option agreement dated August 31, 2005 with Francis                    V. Dane as                    filed Exhibit 10.30 here in.                                                                                                     |
| *10.33                                         | Form                    of stock option agreement dated August 31, 2005 with C. B. Sung                    as filed                    Exhibit 10.30 here in.                                                                                                          |
| 14.00                                          | Code                    of Ethics -Incorporated by reference to the registrant’s Annual Report on                    Form 10-K (file no. 0-19301) filed with the Commission on March                    30,                    2004.                             |
| *21.1                                          | Schedule                    of Subsidiaries.                                                                                                                                                                                                                           |
| *23.1                                          | Consent                    of Stonefield Josephson, Inc, Independent Registered Public Accounting                    Firm.                                                                                                                                             |
| *31.1                                          | Certification                    of Company’s Chief Executive Officer pursuant to Section 302 of the                    Sarbanes-Oxley Act of 2002                                                                                                               |
| *31.2                                          | Certificate                    of Company’s Chief Financial Officer pursuant to Section 302 of the                    Sarbanes-Oxley Act of 2002                                                                                                                 |
| *32.1                                          | Certification                    of Chief Executive Officer pursuant to 18 USC Section 1750, as                    adopted                    pursuant to Section 906 of the Sarbanes-Oxley Act of                    2002                                             |
| *32.2                                          | Certification                    of Chief Financial Officer pursuant to 18 USC Section 1750, as                    adopted                    pursuant to Section 906 of the Sarbanes-Oxley Act of                    2002                                             |

----

| † | Confidential                  treatment of certain portions of this exhibit have been previously                  granted                  pursuant to a request for confidentiality dated March 29, 1993, filed                  pursuant to the Securities Exchange Act of 1934. |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| * | Filed                  herewith. |
|---|----------------------------------|

| †† | Confidential                  treatment of certain portions of this exhibit have been requested                  from the                  SEC pursuant to a request for confidentiality dated March 30, 1999,                  filed                  pursuant to the Securities and Exchange Act of                  1934. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Xx | Confidential                    treatment of certain portions of this exhibit have been requested                    from the                    SEC pursuant to a request for confidentiality dated March 30,                    2006 filed                    pursuant to the Securities and Exchange Act of                    1934. |
|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Communication                  Intelligence Corp. |
|--------|---------------------------------------------------|
|   | By:                                               |  /s/                  Francis V. Dane Francis                  V. Dane(Principal                  Financial Officer and Officer Duly Authorized to Sign on Behalf                  of the                  Registrant) |

----

| **Signature**                                                                  | **Title**                                                                                                                           |
|--------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------|
|                                                                           |                                                                                                                                |
|  /s/                  Guido DiGregorio                   Guido DiGregorio |  Chairman,                  President and Chief Executive Officer(Principal                  Executive Officer)                |
|  /s/                  Francis V. Dane                   Francis V. Dane   |  Chief                  Legal Officer and Chief Financial Officer(Principal                  Financial and Accounting Officer) |
|  /s/                  Michael Farese                   Michael Farese     |  Director                                                                                                                      |
|  /s/                  Louis P. Panetta                   Louis P. Panetta |  Director                                                                                                                      |
|  /s/                  Chien Bor Sung                   Chien Bor Sung     |  Director                                                                                                                      |
|  /s/                  David Welch                   David Welch           |  Director                                                                                                                      |

----

----

**Communication          Intelligence Corporation**

**Consolidated          Balance Sheets**

**(In          thousands, except par value amounts)**

|                                                                                                                                                                                                                                                      |   | **December                    31,** |     |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|----------|
|                                                                                                                                                                                                                                                      |   | **2005**                            |     | **2004** |   |
| **Assets**                                                                                                                                                                                                                                                |   |                                |     |   |   |
| Current                    assets:                                                                                                                                                                                                                        |   |                                |     |   |   |
| Cash                    and cash equivalents                                                                                                                                                                                                              |   | $                                   | 2,849    |   | $ | 4,736 |   |
| Accounts                    receivable, net of allowances of $387 and $404 at December 31,                    2005 and                    2004, respectively                                                                                              |   |                                | 483      |   |   | 356 |   |
| Deferred                    financing costs - current portion                                                                                                                                                                                             |   |                                | 121      |   |   | 272 |   |
| Prepaid                    expenses and other current assets                                                                                                                                                                                              |   |                                | 168      |   |   | 105 |   |
| Total                    current assets                                                                                                                                                                                                              |   |                                | 3,621    |   |   | 5,469 |   |
| Property                    and equipment, net                                                                                                                                                                                                            |   |                                | 147      |   |   | 123 |   |
| Patents                                                                                                                                                                                                                                                   |   |                                | 4,285    |   |   | 4,663 |   |
| Capitalized                    software development costs                                                                                                                                                                                                 |   |                                | 283      |   |   | 32 |   |
| Deferred                    financing costs - long-term                                                                                                                                                                                                   |   |                                | 100      |   |   | 502 |   |
| Other                    assets                                                                                                                                                                                                                           |   |                                | 30       |   |   | 30 |   |
| Total                    assets                                                                                                                                                                                                                           |   | $                                   | 8,466    |   | $ | 10,819 |   |
|  **Liabilities                    and Stockholders' Equity**                                                                                                                                                                                         |   |                                |     |   |   |   |   |
| Current                    liabilities:                                                                                                                                                                                                                   |   |                                |     |   |   |   |   |
| Short-term                    debt - related party                                                                                                                                                                                                        |   | $                                   | −  |   | $ | 8 |   |
| Short-term                    debt - other                                                                                                                                                                                                                |   |                                | −  |   |   | 36 |   |
| Accounts                    payable                                                                                                                                                                                                                       |   |                                | 288      |   |   | 241 |   |
| Accrued                    compensation                                                                                                                                                                                                                   |   |                                | 235      |   |   | 258 |   |
| Other                    accrued liabilities                                                                                                                                                                                                              |   |                                | 283      |   |   | 400 |   |
| Deferred                    revenue                                                                                                                                                                                                                       |   |                                | 557      |   |   | 458 |   |
| Total                    current liabilities                                                                                                                                                                                                              |   |                                | 1,363    |   |   | 1,401 |   |
|  Long-term                    debt - related party                                                                                                                                                                                                   |   |                                | −  |   |   | 5 |   |
|  Convertible                    notes, net of unamortized fair value assigned to beneficial conversion                    feature and warrants of $674 and $2,410 at December 31, 2005                    and 2004,                    respectively. |   |                                | 1,169    |   |   | 1,785 |   |
| Minority                    interest                                                                                                                                                                                                                 |   |                                |  78 |   |   | 97 |   |
| Commitments                    and contingencies (Note 8)                                                                                                                                                                                            |   |                                | -        |   |   | - |   |
| Stockholders'                    equity:                                                                                                                                                                                                                  |   |                                |     |   |   |   |   |
| Preferred                    Stock, $.01 par value, 10,000 shares authorized, 0 outstanding                    at December                    31, 2005 and 2004, respectively                                                                             |   |                                | -        |   |   | - |   |
| Common                    stock, $.01 par value; 125,000 shares authorized; 106,542 and                    101,412                    shares issued and outstanding at December 31, 2005 and 2004,                    respectively                        |   |                                | 1,065    |   |   | 1,014 |   |
| Additional                    paid-in capital                                                                                                                                                                                                             |   |                                | 89,517   |   |   | 87,231 |   |
| Accumulated                    deficit                                                                                                                                                                                                                    |   |                                | (84,575  | ) |   | (80,544 | ) |
| Accumulated                    other comprehensive loss                                                                                                                                                                                                   |   |                                | (151     | ) |   | (170 | ) |
| Total                    stockholders' equity                                                                                                                                                                                                             |   |                                | 5,856    |   |   | 7,531 |   |
|                                                                                                                                                                                                                                                      |   |                                |     |   |   |   |   |
| Total                    liabilities and stockholders' equity                                                                                                                                                                                             |   | $                                   | 8,466    |   | $ | 10,819 |   |

----

**Communication        Intelligence Corporation**

**Consolidated        Statements of Operations**

**(In        thousands, except per share amounts)**

|                                                                                |   | **Years                  ended December 31,** |    |
|-------------------------------------------------------------------------------------|--------|-----------------------------------------------|---------|
|                                                                                |   | **2005**                                      |    | **2004** |   | **2003** |   |
|                                                                                |   |                                          |    |   |   |   |   |
| Revenues:                                                                           |   |                                          |    |   |   |   |   |
| eSignature                                                                          |   | $                                             | 2,067   |   | $ | 6,278 |   | $ | 1,849 |   |
| Natural                  input                                                      |   |                                          | 1,054   |   |   | 969 |   |   | 518 |   |
| China                  system integration                                           |   |                                          | − |   |   | 37 |   |   | 667 |   |
|                                                                                |   |                                          | 3,121   |   |   | 7,284 |   |   | 3,034 |   |
| Operating                  costs and expenses:                                      |   |                                          |    |   |   |   |   |   |   |   |
| Cost                  of sales:                                                     |   |                                          |    |   |   |   |   |   |   |   |
| eSignature                                                                          |   |                                          | 105     |   |   | 22 |   |   | 124 |   |
| Natural                  Input                                                      |   |                                          | 43      |   |   | - |   |   | 17 |   |
| China                  system integration                                           |   |                                          | -       |   |   | 31 |   |   | 624 |   |
| Research                  and development                                           |   |                                          | 1,144   |   |   | 1,187 |   |   | 1,302 |   |
| Sales                  and marketing                                                |   |                                          | 1,240   |   |   | 1,306 |   |   | 905 |   |
| General                  and administrative                                         |   |                                          | 2,173   |   |   | 2,483 |   |   | 2,219 |   |
|                                                                                |   |                                          |    |   |   |   |   |   |   |   |
|                                                                                |   |                                          | 4,705   |   |   | 5,029 |   |   | 5,191 |   |
|                                                                                |   |                                          |    |   |   |   |   |   |   |   |
| Income                  (loss) from operations                                      |   |                                          | (1,584  | ) |   | 2,255 |   |   | (2,157 | ) |
|                                                                                |   |                                          |    |   |   |   |   |   |   |   |
| Interest                  income and other income, net                              |   |                                          | 17      |   |   | 47 |   |   | 1 |   |
| Interest                  expense                                                   |   |                                          | (208    | ) |   | (514 | ) |   | (205 | ) |
| Amortization                  of loan discount and deferred financing cost (Note 6) |   |                                          | (2,275  | ) |   | (187 | ) |   | − |   |
| Minority                  interest                                                  |   |                                          | 19      |   |   | 19 |   |   | 16 |   |
|                                                                                |   |                                          |    |   |   |   |   |   |   |   |
|                                                                                |   |                                          |    |   |   |   |   |   |   |   |
| Net                  income (loss)                                                  |   | $                                             | (4,031  | ) | $ | 1,620 |   | $ | (2,345 | ) |
|                                                                                |   |                                          |    |   |   |   |   |   |   |   |
|  Basic                  and diluted income (loss) per share                    |   | $                                             | (0.04   | ) | $ | 0.02 |   | $ | (0.02 | ) |
|                                                                                |   |                                          |    |   |   |   |   |   |   |   |
|  Basic                  weighted average shares                                |   |                                          | 104,189 |   |   | 100,909 |   |   | 97,436 |   |
|                                                                                |   |                                          |    |   |   |   |   |   |   |   |
|  Diluted                  weighted average shares                              |   |                                          | 104,189 |   |   | 107,572 |   |   | 97,436 |   |

----

**Communication        Intelligence Corporation**

**Consolidated        Statements of Changes in Stockholders' Equity **

**(In        thousands)**

|                                                                                                                  |   |    **Common                  Shares** |    |    **Common****Stock** |                    |   **Additional****Paid-In****Capital** |   |    **Accumulated****Deficit** |         |  **Accumulated****Other****Comprehensive****Loss** |                    |     **Total** |    |
|-----------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------|---------|---------------------------------------|-------------------------|--------------------------------------------------|--------|----------------------------------------------|--------------|---------------------------------------------------------|-------------------------|-----------------------------------|---------|
| Balances                  as of December 31, 2002                                                                     |   |                                                 | 91,481  |                                  | $                       | 915                                              |   | $                                            | 82,025       |                                                    | $                       | (79,819                           | )       | $ | (187 | ) | $ | 2,934 |   |
| Sale                  of Common 8,621 shares through Cornell Capital net of                  expenses                 |   |                                                 | 8,621   |                                  | $                       | 86                                               |   | $                                            | 1,503        |                                                    |                  $ |                              |    | $ |   |   | $ | 1,589 |   |
| Comprehensive                  income (loss):Net                  (loss)                                              |   |                                                 |    |                                  |                    |                                             |   |                                         |         |                                                    |                    | (2,345                            | )       |   |   |   |   | (2,345 | ) |
| Foreign                  currency translation adjustment                                                              |   |                                                 |    |                                  |                    |                                             |   |                                         |         |                                                    |                    |                              |    |   | 9 |   |   | 9 |   |
| Total                  comprehensive income (loss)                                                                    |   |                                                 |    |                                  |                    |                                             |   |                                         |         |                                                    |                    |                              |    |   |   |   |   | (2,336 | ) |
|  Balances                  as of December 31, 2003                                                               |   |                                                 | 100,102 |                                  |  $                 |  1,001                                      |   |  $                                      |  83,528 |                                                    |  $                 |  (82,164                     |  ) |  $ |  (178 |  ) |  $ |  2,187 |   |
| Sale                  of shares of Common stock through Cornell Capital net of                  expenses              |   |                                                 | 1,133   |                                  | $                  | 11                                               |   | $                                       | 680          |                                                    |                    |                              |    | $  |   |   | $  | 691 |   |
| Exercise                  of options for shares of common stock                                                       |   |                                                 | 177     |                                  |                    | 2                                                |   |                                         | 51           |                                                    |                    |                              |    |   |   |   |   | 53 |   |
| Fair                  value of warrants issued to the agent in connection with convertible                  notes     |   |                                                 |    |                                  |                    |                                             |   |                                         | 421          |                                                    |                    |                              |    |   |   |   |   | 421 |   |
| Fair                  value of warrants issued to the investors in connection with convertible                  notes |   |                                                 |    |                                  |                    |                                             |   |                                         | 982          |                                                    |                    |                              |    |   |   |   |   | 982 |   |
| Fair                  value of beneficial conversion feature associated with the convertible                  notes   |   |                                                 |    |                                  |                    |                                             |   |                                         | 1,569        |                                                    |                    |                              |    |   |   |   |   | 1,569 |   |
| Comprehensive                  income:Net                  income                                                     |   |                                                 |    |                                  |                    |                                             |   |                                         |         |                                                    |                    | 1,620                             |    |   |   |   |   | 1,620 |   |
| Foreign                  currency translation adjustment                                                              |   |                                                 |    |                                  |                    |                                             |   |                                         |         |                                                    |                    |                              |    |   | 8 |   |   | 8 |   |
| Total                  comprehensive income                                                                           |   |                                                 |    |                                  |                    |                                             |   |                                         |         |                                                    |                    |                              |    |   |   |   |   | 1,628 |   |
|  Balances                  as of December 31, 2004                                                               |   |                                                 | 101,412 |                                  |  $                 |  1,014                                      |   | $                                            |  87,231 |                                                    |  $                 |  (80,544                     |  ) |  $ |  (170 |  ) |  $ |  7,531 |   |
| Shares                  of Common Stock issued on conversion of long-term notes                                       |   |                                                 | 5,092   |                                  |                  $ | 51                                               |   |                  $                      | 2,271        |                                                    |                    |                              |    |   |   |   |                  $ | 2,322 |   |
| Shares                  issued for services                                                                           |   |                                                 | 24      |                                  |                    |                                             |   |                                         | 10           |                                                    |                    |                              |    |   |   |   |   | 10 |   |
| Shares                  issued on exercise of stock options                                                           |   |                                                 | 14      |                                  |                    |                                             |   |                                         | 5            |                                                    |                    |                              |    |   |   |   |   | 5 |   |
| Comprehensive                  (loss):Net                  loss                                                       |   |                                                 |    |                                  |                    |                                             |   |                                         |         |                                                    |                    | (4,031                            | )       |   |   |   |   | (4,031 | ) |
| Foreign                  currency translation adjustment                                                              |   |                                                 |    |                                  |                    |                                             |   |                                         |         |                                                    |                    |                              |    |   | 19 |   |   | 19 |   |
| Total                  comprehensive loss                                                                             |   |                                                 |    |                                  |                    |                                             |   |                                         |         |                                                    |                    |                              |    |   |   |   |                  $ | (4,012 | ) |
|  Balances                  as of December 31, 2005                                                               |   |                                                 | 106,542 |                                  |  $                 | 1,065                                            |   |  $                                      | 89,517       |                                                    |  $                 | (84,575                           | )       |  $ | (151 | ) |  $ | 5,856 |   |

----

**Communication        Intelligence Corporation**

**Consolidated        Statements of Cash Flows**

**(In        thousands)**

|                                                                                                                                                  |   | **Years                  ended December 31,** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|--------|
|                                                                                                                                                  |   | **2005**                                      |   | **2004** |   | **2003** |   |
| **Cash                  flows from operating activities**                                                                                             |   |                                          |   |   |   |   |   |
| Net                  income (loss)                                                                                                                    |   | $                                             | (4,031 | ) | $ | 1,620 |   | $ | (2,345 | ) |
| Adjustments                  to reconcile net income (loss) to net cash provided by (used in)                  operating                  activities: |   |                                          |   |   |   |   |   |   |   |   |
| Depreciation                  and amortization                                                                                                        |   |                                          | 466    |   |   | 425 |   |   | 456 |   |
| Amortization                  of convertible note discount                                                                                       |   |                                          | 1,706  |   |   | 142 |   |   | - |   |
| Deferred                  financing costs                                                                                                        |   |                                          | 553    |   |   | - |   |   | − |   |
| Loss                  on disposal of property and equipment                                                                                      |   |                                          | 43     |   |   | 8 |   |   | 8 |   |
| Provision                  for inventory obsolescence                                                                                            |   |                                          | -      |   |   | - |   |   | 38 |   |
| Provision                  for doubtful accounts                                                                                                 |   |                                          | 4      |   |   | 148 |   |   | 13 |   |
| Stock                  issued for services                                                                                                       |   |                                          | 10     |   |   | - |   |   | - |   |
| Changes                  in operating assets and liabilities                                                                                          |   |                                          |   |   |   |   |   |   |   |   |
| Accounts                  receivable,                                                                                                                 |   |                                          | (131   | ) |   | 238 |   |   | (278 | ) |
| Inventories                                                                                                                                           |   |                                          | -      |   |   | 47 |   |   | 28 |   |
| Prepaid                  expenses and other current assets                                                                                            |   |                                          | (63    | ) |   | (12 | ) |   | 67 |   |
| Other                  assets                                                                                                                         |   |                                          | -      |   |   | - |   |   | 13 |   |
| Accounts                  payable                                                                                                                     |   |                                          | 47     |   |   | (2 | ) |   | 83 |   |
| Accrued                  compensation                                                                                                                 |   |                                          | (23    | ) |   | (1 | ) |   | 9 |   |
| Other                  accrued liabilities                                                                                                            |   |                                          | (108   | ) |   | (85 | ) |   | (87 | ) |
| Deferred                  revenue                                                                                                                     |   |                                          | 99     |   |   | 293 |   |   | - |   |
| Net                  cash provided by (used in)operating activities                                                                                   |   |                                          | (1,428 | ) |   | 2,821 |   |   | (1,995 | ) |
|                                                                                                                                                  |   |                                          |   |   |   |   |   |   |   |   |
| **Cash                  flows from investing activities**                                                                                             |   |                                          |   |   |   |   |   |   |   |   |
| Acquisition                  of property and equipment                                                                                                |   |                                          | (107   | ) |   | (37 | ) |   | (30 | ) |
| Capitalization                  of software development costs                                                                                         |   |                                          | (299   | ) |   | (45 | ) |   | - |   |
| Net                  cash used in investing activities                                                                                                |   |                                          | (406   | ) |   | (82 | ) |   | (30 | ) |
|                                                                                                                                                  |   |                                          |   |   |   |   |   |   |   |   |
| **Cash                  flows from financing activities**                                                                                             |   |                                          |   |   |   |   |   |   |   |   |
| Proceeds                  from issuance of short-term debt                                                                                            |   |                                          | -      |   |   | 36 |   |   | 750 |   |
| Proceeds                  from issuance of long-term debt - related party                                                                             |   |                                          | -      |   |   | - |   |   | 24 |   |
| Proceeds                  from issuance of convertible notes, net                                                                                     |   |                                          | -      |   |   | 3,885 |   |   | - |   |
| Principal                  payments on short-term debt                                                                                                |   |                                          | (36    | ) |   | (3,008 | ) |   | - |   |
| Principal                  payments on long-term debt - related party                                                                                 |   |                                          | (13    | ) |   | - |   |   | (3 | ) |
| Principal                  payments on capital lease obligations                                                                                      |   |                                          | (9     | ) |   | (8 | ) |   | (7 | ) |
| Proceeds                  from issuance of common stock                                                                                               |   |                                          | -      |   |   | - |   |   | 2,000 |   |
| Offering                  costs                                                                                                                       |   |                                          | -      |   |   | - |   |   | (411 | ) |
| Proceeds                  from exercise of stock options                                                                                              |   |                                          | 5      |   |   | 53 |   |   | - |   |
| Net                  cash provided by (used in) financing activities                                                                                  |   |                                          | (53    | ) |   | 958 |   |   | 2,353 |   |
|                                                                                                                                                  |   |                                          |   |   |   |   |   |   |   |   |
| Net                  increase (decrease) in cash and cash equivalents                                                                                 |   |                                          | (1,887 | ) |   | 3,697 |   |   | 328 |   |
| Cash                  and cash equivalents at beginning of year                                                                                       |   |                                          | 4,736  |   |   | 1,039 |   |   | 711 |   |
|                                                                                                                                                  |   |                                          |   |   |   |   |   |   |   |   |
| Cash                  and cash equivalents at end of year                                                                                             |   | $                                             | 2,849  |   | $ | 4,736 |   | $ | 1,039 |   |

----

**Communication        Intelligence Corporation**

**Consolidated        Statements of Cash Flows**

**(In        thousands)**

**Supplemental            disclosure of cash flow information:**

|                                                                                                                |   | **December                      31,** |   |
|---------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|
|                                                                                                                |   | **2005**                              |   | **2004** |   | **2003** |   |
|  Interest                      paid                                                                            |   | $                                     | 237    |   | $ | 509 |   | $ | 209 |   |
|  Income                      tax paid                                                                          |   | $                                     | -      |   | $ | - |   | $ | - |   |
|  Schedule                      of non-cash transactions:                                                       |   |                                  |   |   |   |   |   |   |   |   |
|  Inventory                      reserve provision                                                              |   | $                                     | -      |   | $ | - |   | $ | 38 |   |
|  Non-cash                      compensation                                                                    |   | $                                     | -      |   | $ | 70 |   | $ | 70 |   |
|  Common                      stock issued upon the conversion of short term debt net                           |   | $                                     | -      |   | $ | 691 |   | $ | - |   |
|  Common                      stock issued upon the conversion of long term debt net                            |   | $                                     | 2,322  |   | $ | - |   | $ | - |   |
|  Deferred                      financing costs associated with convertible notes                               |   | $                                     | -      |   | $ | 714 |   | $ | - |   |
|  Loan                      discount associated with convertible notes net of                      amortization |   | $                                     | -      |   | $ | 2,409 |   | $ | - |   |
|  Issuance                      of common stock for services                                               |   | $                                     | 10     |   | $ | - |   | $ | - |   |

----

**1.        Nature of Business, Basis of Presentation and Summary of Significant Accounting        Policies**

**The        Company**

**Going        Concern**

**Basis        of Consolidation**

----

**Nature        of Business, Basis of Presentation and Summary of Significant Accounting        Policies (continued)**

**Use        of Estimates**

**Fair        Value of Financial Instruments**

**Cash        and Cash Equivalents **

|                                       |   | **2005** |   | **2004** |   |
|--------------------------------------------|--------|----------|--------|----------|--------|
|                                       |   |     |   |     |   |
| Cash                  in bank              |   | $        | 213    |     | $      | 1,734 |   |
| Money                  market funds        |   |     | 2,636  |     |   | 3,002 |   |
|                                       |   |     |   |     |   |   |   |
| Cash                  and cash equivalents |   | $        | 2,849  |     | $      | 4,736 |   |
|                                       |   |     |   |     |   |   |

**Concentrations        of Credit Risk**

----

**1.        Nature of Business, Basis of Presentation and Summary of Significant Accounting        Policies (continued)**

**Deferred        Financing Costs**

**Property        and Equipment, Net**

|                                                            |   | **2005** |   | **2004** |   |
|-----------------------------------------------------------------|--------|----------|--------|----------|--------|
|  Machinery                  and equipment                  |   | $        | 1,198  |     | $      | 1,283 |   |
| Office                  furniture and fixtures                  |   |     | 459    |     |   | 432 |   |
| Leasehold                  improvements                         |   |     | 84     |     |   | 84 |   |
| Purchased                  software                             |   |     | 270    |     |   | 218 |   |
|                                                            |   |     |   |     |   |   |   |
|                                                            |   |     | 2,011  |     |   | 2,017 |   |
| Less                  accumulated depreciation and amortization |   |     | (1,864 | )        |   | (1,894 | ) |
|                                                            |   |     |   |     |   |   |   |
|                                                            |   | $        | 147    |     | $      | 123 |   |
|                                                            |   |     |   |     |   |   |   |

**Patents        **

| ·   | Patent                  numbers 5544255, 5647017, 5818955 and 6064751 involve (a) the electronic                  capture of a handwritten signature utilizing an electronic tablet                  device                  on a standard computer system within an electronic document, (b)                  the                  verification of the identity of the person providing the electronic                  signature through comparison of stored signature measurements,                  and (c) a                  system to determine whether an electronic document has been modified                  after                  signature. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | Patent                  number 6091835 involves all of the foregoing and the recording                  of the                  electronic execution of a document regardless of whether execution                  occurs                  through a handwritten signature, voice pattern, fingerprint or                  other                  identifiable means. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Patent                  numbers 5933514, 6212295, 6381344, and 6487310 involve methods                  and                  processes related to handwriting recognition developed by the Company                  over                  the years. Legal fees associated with these patents was immaterial                  and                  expensed as the fees were incurred. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                           |   |   **Expiration** |    | **Estimated                  Original****Life** |   |   **2005** |   |   **2004** |   |
|------------------------------------------------|--------|----------------------------|---------|-------------------------------------------------|--------|----------------------|--------|----------------------|--------|
| Patent                  (Various)              |   |                       | Various |                                            |   | 5                    |   | $                    | 9      |   | $ | 9 |   |
| Patent                  (Various)              |   |                       | Various |                                            |   | 7                    |   |                 | 476    |   |   | 476 |   |
| 5544255                                        |   |                       | 2013    |                                            |   | 13                   |   |                 | 93     |   |   | 93 |   |
| 5647017                                        |   |                       | 2014    |                                            |   | 14                   |   |                 | 187    |   |   | 187 |   |
| 5818955                                        |   |                       | 2015    |                                            |   | 15                   |   |                 | 373    |   |   | 373 |   |
| 6064751                                        |   |                       | 2017    |                                            |   | 17                   |   |                 | 1,213  |   |   | 1,213 |   |
| 6091835                                        |   |                       | 2017    |                                            |   | 17                   |   |                 | 4,394  |   |   | 4,394 |   |
|                                           |   |                       |    |                                            |   |                 |   |                 |   |   |   |   |   |
|                                           |   |                       |    |                                            |   |                 |   |                 | 6,745  |   |   | 6,745 |   |
| Less                  accumulated amortization |   |                       |    |                                            |   |                 |   |                 | (2,460 | ) |   | (2,082 | ) |
|                                           |   |                       |    |                                            |   |                 |   |                 |   |   |   |   |   |
|                                           |   |                       |    |                                            |   |                 |   | $                    | 4,285  |   | $ | 4,663 |   |
|                                           |   |                       |    |                                            |   |                 |   |                 |   |   |   |   |   |

| ·   | The                  estimated cash flow from products based upon each patent are expected                  to                  exceed the value assigned to each                  patent; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | There                  are no legal, regulatory or contractual provisions known to the                  Company                  that limit the useful life of each patent to less than the assigned                  useful                  life; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | No                  additional material costs need to be incurred or modifications                  made in                  order for the Company to continue to be able to realize the protection                  afforded by the patents; and |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The                  Company does not foresee any effects of obsolescence or significant                  competitive pressure on its current or future products, anticipates                  increasing demand for products utilizing the patented technology,                  and                  believes that the current markets for its products based on the                  patented                  technology will remain constant or will grow over the useful lives                  assigned to the patents because of a legal, regulatory and business                  environment encouraging the use of electronic                  signatures. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**1.        Nature of Business, Basis of Presentation and Summary of Significant Accounting        Policies (continued)**

**Patents        (continued)**

**Long-Lived        Assets**

**Software        Development Costs**

**Other        Current Liabilities**

----

**1.        Nature of Business, Basis of Presentation and Summary of Significant Accounting        Policies (continued)**

**Other        Current Liabilities (continued)**

|                                           |   | 2005   |   | 2004   |   |
|------------------------------------------------|--------|--------|--------|--------|--------|
|                                           |   |   |   |   |   |
| Accrued                  professional services |   | $      | 104    |   | $      | 154 |   |
| Refundable                  deposits           |   |   | 115    |   |   | 115 |   |
| Other                                          |   |   | 64     |   |   | 131 |   |
|  Total                                    |   | $      | 283    |   | $      | 400 |   |

**Material        commitments:**

|                                                  |   | Payments                    due by period |
|-------------------------------------------------------|--------|-------------------------------------------|
|  Contractual                  obligations        |   |                                      | Total | 2006 | 2007 | 2008 | 2009 | 2010 | Thereafter |
| Long-term                    debt (1)                 |   |                                      | $ 1,169 | $ - | $ 1,169 | $ - | $ - | $ - | $ - |
| Operating                    lease commitments (2)    |   |                                      | 1,601 | 309 | 236 | 264 | 272 | 280 | 240 |
| Total                    contractual cash obligations |   |                                      |  $ 2,770 |  $ 309 |  $ 1,405 |  $ 264 |  $ 272 |  $280 |  $240 |

| 1.   | Long-term                  debt is net of approximately $674 in discounts representing the                  fair value                  of warrants issued to the investors and the beneficial conversion                  feature                  associated with the convertible                  notes. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2.   | The                  operating lease commenced on November 1, 2002. The lease was renegotiated                  in December 2005 and extended an additional 60 months. The base                  rent will                  increase approximately 3% per annum over the term of the lease,                  which                  expires on October 31, 2011. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Stock-Based        Compensation**

**Revenue        Recognition**

----

**1.        Nature of Business, Basis of Presentation and Summary of Significant Accounting        Policies (continued)**

**Revenue        Recognition (continued)**

**Major      Customers**

*.*

*.*

**Research      and Development**

----

**1.      Nature of Business, Basis of Presentation and Summary of Significant Accounting      Policies (continued)**

**Advertising      **

**Net      Income (Loss) Per Share**

| For                the Year Ended December 31,         |
|--------------------------------------------------------|
|                                                   |   | 2005 | 2004 | 2003 |
|                                                   |   |   Net                Loss | Weighted                Average SharesOutstanding |   Per-ShareAmount |   Net                Income | WeightedAverage                SharesOutstanding |   Per-ShareAmount |   NetLoss | WeightedAverage                SharesOutstanding |   Per-ShareAmount |
| Basic                income (loss):                    |   |   |   |   |   |   |   |   |   |   |
| Income                (loss) available to stockholders |   |   $(4,031) |   104,189 |   $(0.04) |   $1,620 |   100,909 |   $                0.02 |   $(2,345) |   97,436 |   $                (0.02) |
|                                                   |   |   |   |   |   |   |   |   |   |   |
| Effect                of dilutive securities:          |   |   |   |   |   |   |   |   |   |   |
| Stock                options                           |   |   | - | - |   | 1,813 |  - |   |  - |   |
| Warrants                                               |   |   | - | - |   | 4,850 |  - |   |  - |   |
| Diluted                income (loss)                   |   |  $(4,031) |  104,189 |  $                (0.04) |  $1,620 |  107,572 |  $                0.02 |  $(2,345) |  97,436 |  $                (0.02) |

**Foreign      Currency Translation**

----

**1.      Nature of Business, Basis of Presentation and Summary of Significant Accounting      Policies (continued)**

**Income      Taxes**

**Recent      Pronouncements **

----

----

**1.      Nature of Business, Basis of Presentation and Summary of Significant Accounting      Policies (continued)**

**Recent      Pronouncements **

*."      *

----

**2.      Chinese Joint Venture**

**3.      Comprehensive Income**

**4.      Short-term Debt - Other**

**5.      Short-term and Long-term Debt - Related Party**

----

**5.      Short-term and Long-term Debt - Related Party (continued)**

**6.      Convertible Notes**

----

**6.      Convertible Notes (continued)**

** **

**7.      Stockholders' Equity **

**Common      Stock Options**

----

**7.      Stockholders' Equity (continued)**

**Common      Stock Options (continued)**

|                                                                                                      |   | **Year                Ended December 31,** |
|-----------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|
|                                                                                                      |   | **2005**                                   |   | **2004** |
|                                                                                                      |   |   **Shares**                     | **Weighted****Average****Exercise                Price** |   **Shares** | **Weighted****Average****Exercise                Price** |
| Outstanding                at beginning of period                                                         |   | 3,227                                      | $0.67 | 2,796 | $0.70 |
| Granted                                                                                                   |   | 2,028                                      | $0.85 | 1,334 | $0.53 |
| Exercised                                                                                                 |   | (24)                                       | $0.41 | (70) | $0.33 |
| Forfeited                                                                                                 |   | (969)                                      | $0.67 | (833) | $0.36 |
|                                                                                                      |   |                                       |   |   |   |
| Outstanding                at period end                                                                  |   | 4,262                                      | $0.76 | 3,227 | $0.67 |
|                                                                                                      |   |                                       |   |   |   |
| Options                exercisable at period end                                                          |   | 3,865                                      | $0.78 | 2,127 | $0.75 |
| Weighted                average grant-date fair value of options granted during the                period |   |   $0.36                          |   |   $0.29 |   |

|                                                          |   |                                   |   | **Weighted                Average**                            |   |
|---------------------------------------------------------------|--------|----------------------------------------|--------|----------------------------------------------------------------|--------|
|    **Range                of Exercise Prices** |   |   **Options****Outstanding** |   |  **Remaining****Contractual                Life (Years)** |   |    **Exercise                Price** |   |
| $0.00                - $0.50                                  |   |                                   | 1,042  |                                                           |   | 5.3 |   | $ | 0.40 |   |
| $0.51                - $2.00                                  |   |                                   | 3,203  |                                                           |   | 4.4 |   | $ | 0.86 |   |
| $2.01                - $2.99                                  |   |                                   | -      |                                                           |   | - |   | $ | - |   |
| $3.00                - $7.50                                  |   |                                   | 17     |                                                           |   | 4.2 |   | $ | 3.54 |   |
|                                                          |   |                                   | 4,262  |                                                           |   |   |   |   |   |   |

|   **Range                of Exercise Prices** |   |  **Options****Exercisable** |   | **Weighted****Average****Exercise                Price** |   |
|---------------------------------------------------------|--------|----------------------------------|--------|----------------------------------------------------------|--------|
| $0.00                - $0.50                            |   |                             | 844    |                                                     | $      | 0.40 |   |
| $0.51                - $2.00                            |   |                             | 3,004  |                                                     | $      | 0.88 |   |
| $2.01                - $2.99                            |   |                             | -      |                                                     | $      | - |   |
| $3.00                - $7.50                            |   |                             | 17     |                                                     | $      | 3.54 |   |
|                                                    |   |                             | 3,865  |                                                     |   |   |   |

----

**7.      Stockholders' Equity (continued) **

**Common      Stock Options**

|                                                                                                                                                                                                    |   | **2005** |   | **2004** |   | **2003** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
| Net                income (loss) as reported                                                                                                                                                            |   | $        | (4,031 | )        | $      | 1,620    |   | $ | (2,345 | ) |
| Add:                Stock-based employee compensation expense included in reported results                of                operations, net of related tax effects                                      |   |     | -      |     |   | -        |   |   | - |   |
| Deduct:                Total stock-based employee compensation expense determined under                fair                value-based method for all awards, net of related tax                effects |   |     | (1,298 | )        |   | (248     | )      |   | (380 | ) |
| Pro                forma net income (loss)                                                                                                                                                              |   | $        | (5,329 | )        | $      | 1,372    |   | $ | (2,725 | ) |
| Basic                and diluted net income (loss) per share available to                stockholders:                                                                                                  |   |     |   |     |   |     |   |   |   |   |
| As                reported                                                                                                                                                                              |   | $        | (0.04  | )        | $      | 0.02     |   | $ | (0.02 | ) |
| Pro                forma                                                                                                                                                                                |   | $        | (0.05  | )        | $      | 0.01     |   | $ | (0.03 | ) |
|                                                                                                                                                                                                    |   |     |   |     |   |     |   |   |   |   |

**Warrants**

**8.      Commitments**

**Off      balance sheet Arrangements**

----

**8.      Commitments (continued)**

**Lease      Commitments**

**9.      Income Taxes**

|                                            |   | **2005** |    | **2004** |   |
|-------------------------------------------------|--------|----------|---------|----------|--------|
| Deferred                tax assets:             |   |     |    |     |   |
| Net                operating loss carryforwards |   | $        | 24,585  |     | $      | 26,853 |   |
| Credit                carryforwards             |   |     | 396     |     |   | 356 |   |
| Deferred                income                  |   |     | 223     |     |   | 183 |   |
| Other,                net                       |   |     | 215     |     |   | 875 |   |
|                                            |   |     |    |     |   |   |   |
| Total                deferred tax assets        |   |     | 25,419  |     |   | 28,267 |   |
|                                            |   |     |    |     |   |   |   |
| Valuation                allowance              |   |     | (25,419 | )        |   | (28,267 | ) |
|                                            |   |     |    |     |   |   |   |
| Net                deferred tax assets          |   | $        | -       |     | $      | - |   |

|                                                      |   | 2005   |   | 2004   |   | 2003 |   |
|-----------------------------------------------------------|--------|--------|--------|--------|--------|------|--------|
|  Expected                  income tax cost (benefit) |   | $      | (1,327 | )      | $      | 668  |   | $ | (799 | ) |
| State                  income tax net of Federal benefit  |   |   | 234    |   |   | (89  | )      |   | (144 | ) |
| Loss                  write off of foreign investment     |   |   | -      |   |   | -    |   |   | - |   |
| Expired                  net operating loss               |   |   | 2,268  |   |   | 254  |   |   | - |   |
| Change                  in valuation allowance            |   |   | (2,848 | )      |   | (833 | )      |   | 943 |   |
| Other                                                     |   |   | 1,673  |   |   | -    |   |   | - |   |
|  Income                  tax expense (benefit)       |   | $      | -      |   | $      | -    |   | $ | - |   |

----

**10.      Segment Information**

|                                         |   |   |     | HandwritingRecognition |   | Systems                Integration |   |  Total |    |
|----------------------------------------------|--------|--------|----------|------------------------|--------|------------------------------------|--------|-------------|---------|
| 2005                                         |   |   | Revenues |                   | $      | 3,121                              |   | $           | − |   | $ | 3,121 |   |
| Loss                from operations          |   |   |     |                   | $      | (1,584                             | )      | $           | − |   | $ | (1,584 | ) |
| Total                assets                  |   |   |     |                   | $      | 8,466                              |   | $           | − |   | $ | 8,466 |   |
| Depreciation                and amortization |   |   |     |                   | $      | 466                                |   | $           | − |   | $ | 466 |   |
|                                         |   |   |     |                   |   |                               |   |        |    |   |   |   |   |
| 2004                                         |   |   | Revenues |                   | $      | 7,247                              |   | $           | 37      |   | $ | 7,284 |   |
| Income                (loss) from operations |   |   |     |                   | $      | 2,600                              |   | $           | (345    | ) | $ | 2,255 |   |
| Total                assets                  |   |   |     |                   | $      | 9,899                              |   | $           | 920     |   | $ | 10,819 |   |
| Depreciation                and amortization |   |   |     |                   | $      | 407                                |   | $           | 18      |   | $ | 425 |   |
|                                         |   |   |     |                   |   |                               |   |        |    |   |   |   |   |
| 2003                                         |   |   | Revenues |                   | $      | 2,322                              |   | $           | 712     |   | $ | 3,034 |   |
| Loss                from operations          |   |   |     |                   | $      | (2,106                             | )      | $           | (51     | ) | $ | (2,157 | ) |
| Total                assets                  |   |   |     |                   | $      | 6,294                              |   | $           | 921     |   | $ | 7,215 |   |
| Depreciation                and amortization |   |   |     |                   | $      | 438                                |   | $           | 18      |   | $ | 456 |   |

|   |   | Revenues |   | Long                Lived Assets |   |
|--------|--------|----------|--------|----------------------------------|--------|
|   |   | **2005** |   | **2004**                         |   | **2003** |   | **2005** |   | **2004** |   | **2003** |   |
|   |   |     |   |                             |   |   |   |   |   |   |   |   |   |
| U.S.   |   | $        | 2,891  |                             | $      | 7,127 |   | $ | 2,003 |   | $ | 4,699 |   | $ | 4,773 |   | $ | 5109 |   |
|   |   |     |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| China  |   |     | 230    |                             |   | 157 |   |   | 1,031 |   |   | 16 |   |   | 45 |   |   | 71 |   |
|   |   |     |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total  |   | $        | 3,121  |                             | $      | 7,284 |   | $ | 3,034 |   | $ | 4,715 |   | $ | 4,818 |   | $ | 5,180 |   |

----

**10.      Segment Information (continued)**

**11.      Employee Benefit Plans**

**12.      Quarterly information (Unaudited)**

|                                                                        |   | FirstQuarter |               | Second                Quarter |   | ThirdQuarter                  |   | FourthQuarter |         |  Total |   |
|-----------------------------------------------------------------------------|--------|--------------|--------------------|-------------------------------|--------|-------------------------------|--------|---------------|--------------|-------------|--------|
| **2005                Unaudited**                                           |   |         |               |                          |   |                          |   |          |         |        |   |
|                   Net sales                                       |   | $            | 579                |                          | $      | 1,209                         |   | $             | 607          |        | $      | 726 |   | $ | 3,121 |   |
|                   Gross profit                                    |   | $            | 557                |                          | $      | 1,180                         |   | $             | 579          |        | $      | 657 |   | $ | 2,973 |   |
|                   Loss before income taxes, and minority interest |   | $            | (1,095             | )                             | $      | (840                          | )      | $             | (1,575       | )           | $      | (540 | ) | $ | (4,050 | ) |
|                    Net loss                                  |   | $            | (1,088             | )                             | $      | (834                          | )      | $             | (1,569       | )           | $      | (540 | ) | $ | (4,031 | ) |
|                    Basic and diluted loss per share          |   | $            | (0.01              | )                             | $      | (0.01                         | )      | $             | (0.01        | )           | $      | (0.01 | ) | $ | (0.04 | ) |
|                                                                        |   |         |               |                          |   |                          |   |          |         |        |   |   |   |   |   |   |
|                                                                        |   |         | FirstQuarter  |                          |   | Second                Quarter |   |          | ThirdQuarter |        |   | FourthQuarter |   |   | Total |   |
| **2004                Unaudited**                                           |   |         |               |                          |   |                          |   |          |         |        |   |   |   |   |   |   |
| Net                sales                                                    |   | $            | 2,429              |                          | $      | 630                           |   | $             | 3,669        |        | $      | 556 |   | $ | 7,284 |   |
| Gross                profit                                                 |   | $            | 2,396              |                          | $      | 619                           |   | $             | 3,663        |        | $      | 553 |   | $ | 7,231 |   |
| Income                (loss) before income taxes, and minority interest     |   | $            | 1,167              |                          | $      | (678                          | )      | $             | 2,138        |        | $      | (1,026 | ) | $ | 1,601 |   |
|  Net                income (loss)                                      |   | $            | 1,167              |                          | $      | (678                          | )      | $             | 2,145        |        | $      | (1,014 | ) | $ | 1,620 |   |
|  Basic                and diluted income (loss) per share              |   | $            | 0.01               |                          | $      | (0.01                         | )      | $             | 0.02         |        | $      | (0.01 | ) | $ | 0.02 |   |
|                                                                        |   |         |               |                          |   |                          |   |          |         |        |   |   |   |   |   |   |

----

**12.      Quarterly information (Unaudited) (continued)**

|                                                           |   | FirstQuarter |   | Second                Quarter |   | ThirdQuarter |   | FourthQuarter |   |  Total |   |
|----------------------------------------------------------------|--------|--------------|--------|-------------------------------|--------|--------------|--------|---------------|--------|-------------|--------|
| **2003                Unaudited**                              |   |         |   |                          |   |         |   |          |   |        |   |
| Net                sales                                       |   | $            | 1,108  |                          | $      | 572          |   | $             | 936    |        | $      | 418 |   | $ | 3,034 |   |
| Gross                profit                                    |   | $            | 875    |                          | $      | 450          |   | $             | 704    |        | $      | 240 |   | $ | 2,269 |   |
| Loss                before income taxes, and minority interest |   | $            | (310   | )                             | $      | (693         | )      | $             | (470   | )           | $      | (888 | ) | $ | (2,361 | ) |
|  Net                loss                                  |   | $            | (310   | )                             | $      | (690         | )      | $             | (472   | )           | $      | (873 | ) | $ | (2,345 | ) |
|  Basic                and diluted loss per share          |   | $            | (0.01  | )                             | $      | (0.01        | )      | $             | (0.01  | )           | $      | (0.01 | ) | $ | (0.02 | ) |
|                                                           |   |         |   |                          |   |         |   |          |   |        |   |   |   |   |   |   |

**Subsequent      Events**

----

**SCHEDULE      II**

**Communication      Intelligence Corporation**

**Valuation      and Qualifying Accounts and Reserves**

|                                               |   | **Balance****At                Beginning****Of                Period** |   | **Charged                to****Costs                and****Expense** |   |    **Deductions** |   |  **Balance****At                End****Of                Period** |   |
|----------------------------------------------------|--------|------------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|----------------------------------|--------|------------------------------------------------------------------------|--------|
|                                               |   |                                                                   |   |                                                                 |   |                             |   |                                                                   |   |
|  Year                ended December 31, 2003: |   |                                                                   |   |                                                                 |   |                             |   |                                                                   |   |
| Accounts                receivable reserves        |   | $                                                                      | 243    |                                                                 | $      | 25                               |   | $                                                                      | (12    | ) | $ | 256 |   |
|                                               |   |                                                                   |   |                                                                 |   |                             |   |                                                                   |   |   |   |   |   |
|  Year                ended December 31, 2004: |   |                                                                   |   |                                                                 |   |                             |   |                                                                   |   |   |   |   |   |
| Accounts                receivable reserves        |   | $                                                                      | 256    |                                                                 | $      | 234                              |   | $                                                                      | (86    | ) | $ | 404 |   |
|                                               |   |                                                                   |   |                                                                 |   |                             |   |                                                                   |   |   |   |   |   |
|  Year                ended December 31, 2005: |   |                                                                   |   |                                                                 |   |                             |   |                                                                   |   |   |   |   |   |
| Accounts                receivable reserves        |   | $                                                                      | 404    |                                                                 | $      | 4                                |   | $                                                                      | (21    | ) | $ | 387 |   |
|                                               |   |                                                                   |   |                                                                 |   |                             |   |                                                                   |   |   |   |   |   |
|                                               |   |                                                                   |   |                                                                 |   |                             |   |                                                                   |   |   |   |   |   |